Superannuation Guarantee Increases To 12%: A Guide To The Changes!

The federal government has announced important changes to our current superannuation system that will take place starting July 1st 2013. Importantly, for eligible employees this means increases to the current employer contribution to your superannuation, co-contributions from the government for low income earners, and removal of the upper age limit for superannuation contributions for workers aged 70 and over.

This article will review those changes in more depth.

Have you eagerly awaited opening you annual superannuation statement, but been dismayed to see no difference in your portfolio? Hopefully that is about to change.

Since the introduction of compulsory super payments (termed ‘super guarantee’ rate or ‘SG’) in 1992, there have been several increases to compulsory employer contributions, however this has not occurred in some time now.

Superannuation Guarantee Changes

In 1992, the superannuation guarantee rate was originally set at 3% of the employees’ income. This was gradually increased by the Australian Government to 9% in 2002 where it has remained constant for the last eleven years. It was originally proposed to cap the SG rate at 12%, however it has taken a long time to arrive at this point. Low SG rates and a poor performing superannuation industry have left many retiring Australian workers questioning where that promised ‘nest egg’ went.

These newly announced changes hope to rectify this, by a series of steady increases occurring over the next 6 years. Although increases in super rate by .25% or .5% may not seem significant initially, by the turn of the 2019 financial year these steady increases will result in a total increase from 9% to 12% SG.These increases will be implemented in stages at the commencement of each financial year. The staged increases are detailed in the table below.

Date of Change

Super Guarantee Rate

1 July 2013

9.25%

1 July 2014

9.5%

1 July 2015

10%

1 July 2016

10.5%

1 July 2017

11%

1 July 2018

11.5%

1 July 2019

12%

Impact Of The Changes

So how will this impact you? If you are a 30-year-old on average earnings of $70,000, this 3% SG rate increase will result in an estimated additional retirement benefit of $105,000. Let's say you have around $25,000 super to your name at present, that’s around a 20% better increase than you could have expected to retire with at the current Superannuation Guarantee rate.

But don’t book in those retirement cruises just yet. The superannuation system was designed to reduce the burden of an ageing population on the welfare system, so you can expect that increases to super were designed to compensate for decreases to other government payments you may have been banking on to get you through retirement. Couple this with cost of living increases, and that extra $105,000 you thought you had waiting for you is already spent. Superannuation should be just one part of a comprehensive retirement plan, so you can afford to live the retirement that you want to.

More Good News

For those earning less that $37,000 a year, an additional $500 will be paid into your superannuation fund each year by the Australian Government. This is a special co-contribution for low income earners effective 1 July 2013. The Australian Taxation Office will be determining eligibility for this payment on your behalf, so no application is necessary, however you can help by ensuring your super fund has your tax file number.

There is good news for older employees too. From 1 July 2013, the upper age limit for paying superannuation for an employee will be lifted. If you are 70-years-old or over and still working, you are now able to keep building your retirement savings.

What Should You Do?

If you're an employee there are a few things you may want to do. Firstly, talk to your employer. Find out how often they are paying your super, and into which fund they are paying it. If you have worked at several places, you may have multiple super funds meaning you are paying more fees than necessary. You may want to think about consolidating super funds.

Secondly, find out how much super your employer is paying, and check your pay slips to ensure the increases are reflected. Some ‘teething problems’ are likely to occur with these changes, so alert your employer if you think a mistake has been made. You can also check your member statement from your superfund to verify this information.

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